Every year, Mexican immigrants in the United States send tens of billions of dollars to relatives still south of the border, and for their largesse are hit with billions more in fees.
Born in Mexico and now an American citizen living in South Philadelphia, Rosalba Meneses, 24, knows the bite of commissions and foreign-exchange charges when she sends money three times a year, totaling $1,000, to an aunt in Puebla state.
"She uses it for groceries, clothing and spending," said Meneses, who pays commercial services - including Western Union, Sigue, and the online Xoom - to make the transfers, known as remittances.
About half of Mexico's 112 million people have family in the United States. Like Meneses, 20 percent of the Mexicans living here routinely send money back home. Depending on the amount and required speed of delivery, they are typically charged 10 to 16 percent.
Despite a weak U.S. job market and virtually zero net migration out of Mexico, remittances from "El Norte" have exploded, from $6.6 billion in 1999, to a peak of $26.8 billion in 2007 before falling back to $23 billion last year, according to the World Bank.
Against that backdrop, a Philadelphia start-up called Regalii - created by two young entrepreneurs, including a recent University of Pennsylvania Wharton School graduate - is testing its "social gifting platform" as a new, free-to-the-consumer way to send remittances throughout Latin America, with an emphasis on Mexico.
Using a secure website (www.regalii.com), payment gateway, and text messages, Regalii (a twist on regalo, Spanish for gift) will compete with the traditional services that take commissions.
In Regalii's model, there are no commissions. An immigrant buys credits - similar to gift cards - to be redeemed at cooperating retail stores, supermarkets, pharmacies, and other merchandisers in Latin America. After money is deposited in the Regalii system, a code is texted to phone of the recipient, who presents it at the store selected by the sender.
Credits are purchased on a "par" basis, meaning, for example, that a $100 gift card buys $100 of merchandise. Regalii makes money because it buys gift credits in bulk and gets them at a discount. And because the merchandisers already have bank accounts in the United States, transactions are in dollars, with no need to charge customers for foreign exchange.
"That's our secret sauce," said cofounder Edrizio De La Cruz, 31, during an interview in the company's spartan office at the University of the Arts on Broad Street. The shared space is donated by Good Company Ventures, a Philadelphia incubator for entrepreneurs.
"I grew up on remittances," said De La Cruz, who was born in the Dominican Republic and whose father came to this country for work. Eventually, the whole family joined him, but until then, they were supported by remittances.
"Besides the social impact, this is something that affected me personally," he said.
De La Cruz, who graduated last year with a Wharton master's in finance, and business partner Juan Maldonado, who was born in the Bronx to Colombian parents, recently were recognized by Echoing Green. The New York nonprofit group, committed to "socially responsible" investment, gave them $90,000 in seed money.
The company expects to launch by this week and is seeking about $1 million in private investment by the end of its first year.
Brendan McBride, an expert on remittances, sees promise in the Regalii business model - but also some limits.
"By not having to pay fees, and not having to pay the exchange-rate spread, people get a lot more value in what they can purchase," he said. "Of course, this is not the right fit if you just want to receive cash and spend it at 10 different places, or don't know ahead of time what you need to spend it on."
McBride, himself an entrepreneur, has created and expects to launch this fall www.sendremas.org, an online tool for comparing the costs of sending money overseas. "It's like a Travelocity for companies doing international monetary transfer," he said.
Carlos Navarro, pastor of Faith Baptist Church in Wilmington, lives in Kennett Square and also ministers to its large Hispanic community.
On a recent visit to Oaxaca in southern Mexico, he was surprised to see so many people with cellphones and computers in their houses. With new technology should come new means for sending money, he said, but the challenge for Regalii is to find merchandising partners, not only in Mexico's big cities, but also in its hinterlands.
"Apart from making the remittances transfer market more competitive, what differentiates [Regalii] from traditional channels is the sender's discretion on how the resources are used," said Montclair University professor Luis San Vicente Portes, an expert on international macroeconomics.
Such oversight and participation in how the money is spent can be valuable, said Meredith Rapkin, a lawyer with Friends of Farmworkers, which has offices in Philadelphia and many Latino clients.
"I have had clients who needed to send money for a specific purpose," she said, "but their families in Mexico have had trouble controlling what it is used for."
Rather than cash, sending credit to a specific store, she said, would ensure it is used for its intended purpose.
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